Minsky, H. P. 1986. Stabilizing an Unstable Economy, Yale University Press, New Haven and London.N.B. Steve Keen thinks this is Minsky’s worst book. Consult Minsky (1982) and (2008) [1975] instead for the best statements of the FIH.

3 comments:

A nice summation. I am probably one among many catching up on my Minsky in the wake of the financial crisis...

A question: Since large, public financial institutions implicitly contribute to larger system instability -- by softening the blow in the event of a recession and bolstering (over) confidence -- do you think that there is some room for a non-intervention-type argument within the Minsky framework?

Of course, Minsky's central position was that (regulatory) prevention was infinitely preferable to (bailout) cure... as far as I am aware, at least. However, I am more interested in what you take to be the correct Minksian stance, given that the crisis has occurred.

Bailout followed by strict regulatory measures to stem the tide of overconfidence?

"Since large, public financial institutions implicitly contribute to larger system instability -- by softening the blow in the event of a recession and bolstering (over) confidence -- do you think that there is some room for a non-intervention-type argument within the Minsky framework?"

Minsky, as far as I know, favoured strict financial regulation, and Post Keynesians follow him in that.

"Bailout followed by strict regulatory measures to stem the tide of overconfidence?"

I would say modern Post Keynesians want more than that:

(1) a thorough reform of the structure of the financial sector;

(2) cleaning it up: purging it of bad assets and non-performing loans;

(3) and even large-sacle wrtting off or restructing of unsustainable private debt.

The private debt is drowing under the weight of debt: it is causing debt deflationary pressures. We are in much the same position as Japan in the 1990s. Unless that debt is cleaned and private sector balance sheets made much better, we will be mired in a lost decade, like Japan.

To get out of a lost decade, we need (1) to (3), and then large stimulus packages and direct employment programs.

Unfortunately, it will probably take another financial crisis and recession before we get this.